Inflation is characterized by rising prices. It occurs when economy develops due to increased spending. Money loses value because it can’t buy as much as before. If inflation exceeds a moderate rate, it can result in devastating situations for an economy. Therefore, governments should be controlled it. The following are some economic policies that are used to reduce inflation.
In many countries, monetary policy is one of the most important tools for controlling inflation. The governments try and predict future inflation. They look at many economic statistics that help them know if the economy is overheating. If they predict that inflation will increase above a given target, they increase interest rates.
Supply Side Policies
The aim of supply side policies is to increase productivity and competitiveness. For instance, it was anticipated that deregulation and privatization would make companies more competitive and productive. After a long term, supply side policies can help to reduce inflation. However, those policies cannot be used to control a sudden increase in the rate of inflation.
Wage growth is a primary factor in determining inflation. Fast increase of wages causes high inflation. Therefore, some governments limit wage growth to reduce inflation.
Wars have always influenced economics and politics. Winners of wars have shaped trade patterns and economic institutions. They also influence technological developments. Also recurrent wars drains wealth disrupts market and depresses economic growth.
During most conflicts, level of taxation and public debt increase, consumption as a percentage of GDP decreases, investment as a percentage of GDP decreases and inflation increases. It has been observed that excessive military spending displaces more productive non-military outlays in areas such as investments in education, infrastructure, or high-tech industries. In addition, the excessive spending on military functions affect infrastructure development and service delivery, ultimately affecting long-term rates of growth.
In a short-term, the higher level of government spending during war tends to create some positive economic advantages, particularly through increased economic growth during war spending booms. However, unintended and negative consequences occur either during the war or after the war. The aftermath of war is characterized by demobilised soldiers and debts. For instance, many economies in the world struggled after Napoleonic war, First World War and Second World War.
Economic equality is defined as the economic difference found among individuals in groups or among countries. It is sometimes referred to as income inequality, the wealth gap, or wealth inequality. Generally, economists generally focus on economic inequality in three metrics: income, consumption, and wealth.
Economic inequality varies between historical periods, societies and economic structures. The term can refer to the distribution of wealth or income at any particular time. There are many numerical indexes that are used to measure economic equality. However, the Gini coefficient is the most widely used method.
According to studies, economic disparity is a social problem. Too much inequality is destructive because it hinders long-term development. In addition, too much income equality is destructive because it reduces the incentive for productivity and the need to take risks and create wealth.
In many countries, economic inequality is caused by government failure to distribute resources fairly. Many governments are not providing poor people with shelter, employment, education, old age security and health care. One main reason for this state of affairs is the failure of government policies to make society more democratic and fair.
The 2008 global recession is a great global economic decline that started in 2007 and took a sharp downward turn in 2008. Since The Great Depression of the 1930s, there have been no economic recessions that have affected economic production, circulation of capital and input like the 2008 global recession. The 2008 Great Recession affected the whole world economy, affecting some countries more than others.
Several causes of 2008 global recession have been proposed. According to U.S. Senate’s Levin–Coburn Report, the crisis was caused by “high risk, intricate financial products; hidden conflicts of interest; the failure of government, the credit rating agencies, and the market to rein in the excesses of Wall Street. “ Some people think that that credit rating agencies and investors did not correctly value the risk involved with mortgage-related products and governments failed to adjust their regulatory practices to control 21st-century financial markets.
In 2009, Business Week reported that global political instability was rapidly rising due to global financial crisis. In the same year, Dennis Blair, the US Director of National Intelligence, said that economic weakness could cause political instability in many nations. Particularly, the government in Iceland called elections two years early after mass protests in the country due to the government’s handling of the economy. The Great Recession also caused secession movements to increase in Spain.